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Taro shareholders couldn't swallow Sun's offer, the Indian company realized. Photo by Dan Peretz
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Last week, one of the most intractable acquisition attempts ever to beguile market circles finally rolled over and died. Thanks to ultimately mortal opposition of American hedge funds, Sun Pharmaceuticals of India will not be completing the takeover of Israel's Taro Pharmaceuticals after all.

The board at Mumbai-based Sun and its subsidiary Taro Pharmaceutical Industries (66%), decided to withdraw Sun’s offer to buy the outstanding 33% of Taro’s shares, because of the price. Namely - $39.50 per share, which would have cost Sun $60 million.

Since the price of the acquisition deal was 24 percent less than the shares’ price on the stock market, it is clear why Taro’s board of directors felt the shareholders’ interests would be best served by walking away from the deal.

Over at Sun, on the other hand, the board seems to have realized there was zero chance the Taro shareholders would accept the deal, and decided to let it go.

For the fourth quarter of 2012 Taro reported sales growth of 25% to $186 million, net profit $88 million and operating profit of $104 million, which was 56% of turnover.

Taro, which is based in Israel, holds net financial assets worth $447 million. The acquisition proposal thus reflected an enterprise value – the value of its shares minus financial assets – of $1.3 billion, a ridiculous EV/EBITDA (enterprise value; earnings before interest, taxes, depreciation and amortization) value of $3.76 billion.

In the fourth quarter, Taro was responsible for 34.7 percent of Sun's revenue and 46.8 percent of its operating profit.

Yet Taro is trading at a market cap of $2.3 billion – in other words, according to a price-earnings ratio of 12.58, while Sun trades at a value of $14.3 billion, or a price-earnings ratio of 29.85. Clearly the proposed price for the minority share in Taro did not reflect its financial value to Sun.